Home insurance A plea for contract clarity: to be read and understood by consumers

The language of law and insurance can be very difficult for consumers to understand. Because of this difficulty, they are less likely to read their contract, and consequently ignore their rights and obligations.

The purpose of this research is to develop the association's expertise in plain writing, to participate in the Insurance Bureau of Canada's (IBC) home insurance forms review process, and to make recommendations to the IBC and insurance companies on how to make insurance forms more understandable.

As a first step, we analyzed three of the seven home insurance forms produced by IBC, based in particular on the simple writing criteria set out in a guide we produced in collaboration with the Fédération canadienne pour l'alphabétisation en français . We then set up a focus group to gather their comments on the most important points of the home insurance forms.

In addition, we asked them to define in their own words some of the expressions and terms used in home insurance. Finally, we met with IBC representatives to share the results of our work, and sent them a copy of our report.

Six out of nine focus group participants told us they had read or attempted to read their insurance policy. However, most became discouraged and stopped reading because the clauses were too long, incomprehensible and written in "almost illegible" type. Several participants found it difficult to correctly define the expressions and terms used in home insurance. We expected all participants to know the meaning of all the words proposed.

However, only one participant correctly defined all six words submitted. For example, we expected the word "premium" to be understood by everyone, since all participants pay a premium each year in order to be insured. However, this term was correctly defined by only six of the nine participants. When we analyzed the responses, we noticed that a third of the participants attributed the proposed word with its current meaning.

Thus, according to them, a premium was a gift or price reduction offered by an insurer to its customers. However, this is the opposite of what is meant in the insurance industry. This example shows that the use of specialized vocabulary can prevent the average person from understanding a message.

Our analysis of insurance forms has shown that IBC uses a number of techniques that make them easier to read. For example, the reader is addressed directly, the active form is often used, verbs are generally conjugated in the present tense, and the lexicon, though limited, is easy to consult. However, there is still much to be done to make insurance contracts more accessible to the average reader. Insurance contracts use specialized, hermetic terminology derived, among other things, from the law.

However, our focus group participants had difficulty understanding this vocabulary. This was the main obstacle to their understanding. The participants were unfamiliar with the technical terms used in the law. And, unfortunately, these concepts were nowhere defined in the contract.

However, the presence of such a lexicon could have facilitated understanding. Focus group participants would have liked to see the contract clauses, written in generic terms, illustrated with more examples. They felt that the words used did not "speak" enough. In addition, participants felt that some clauses were so imprecise as to be difficult to understand.

Consequently, reading these clauses did not enable participants to know under what circumstances they were covered or not. Contract clauses often refer the reader to other parts of the contract for information that may affect the interpretation of these clauses. This makes for difficult reading and causes the reader to "lose track".

Insurance contracts are drafted by experts. As such, they are easy to understand only for insiders with legal language skills and knowledge of the insurance industry. This situation has undesirable effects for both consumers and the insurance industry.

Firstly, hermetic wording hinders the transmission of information. Secondly, it has an effect on access to justice; our focus group showed how difficult it is for consumers to know under what circumstances they are or are not covered. Finally, according to some focus group participants, these factors damage the image of the insurance industry and undermine their confidence in it.

Our study reveals that many of the participants we met had read or attempted to read their insurance policy, even though this exercise was daunting. What's more, they expressed a desire to be better informed. They would like insurance companies to provide them with a document tailored to their needs and within their reach.